Daily Market Outlook - Monday, March 20

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Banking Turmoil Persists Leaving Investors Cautious

Asian equity markets have started the week in the red as markets digest the emergency acquisition of Credit Suisse by its Swiss counterpart UBS, in a weekend emergency government-brokered deal. UBS is acquiring the beleaguered Credit Suisse for CHF 3bln which will eradicate CHF 16bln of additional tier one bonds. The Nikkei 225 was the Asian posterboy for banking sector stress given the BoJ’s Summary of Opinions provided little in the way of additional information to markets, it is also noteworthy that the BoJ’s USD overnight funding operations had no bids suggesting little real stress evident in the system. The Hang Seng and Shanghai Comp have also seen softness with the tech-heavy Han Seng the standout underperformer, printing losses in excess of 3%, while the Shanghai Comp was supported by Friday’s RRR cut by the PBoC in an effort to boost liquidity and support the economy, however, the central bank opted to maintain its benchmark lending rate at 3.65%.

While the market's main focus remains the turmoil in the banking sector, investors will have one eye on central bank activity this week as officials face the conundrum of balancing inflationary concerns with recent market volatility pressures and the likely implications for economic activity and the appropriate response for monetary policy. Just over a week ago markets were aggressively pricing the potential that the Fed would use this week’s policy update to signal a re-acceleration in the pace of interest rate increases by hiking by 50bps rather than repeating the 25bps rise seen in February, with further indications of the potential for a higher terminal rate for this policy tightening cycle, however, given recent market turbulence, investors are now pricing a 25bps hike with the potential for significant rate cuts by year-end, which marks a stark reversal in market sentiment. Interest rate expectations have also retreated in the UK and the Eurozone although in the case of the European Central Bank, rates are still priced to move higher from current levels by the end of 2023 Interest rate expectations have proved to be very volatile so far this year with this current move representing the second meaningful shift in expectations.

The data docket is somewhat scant today leaving market action to be driven by headlines around the banking turmoil as investors eye rate decisions from the FOMC, Wednesday and Bank of England on Thursday, comments from ECB President Lagarde later may provide additional color into the ECB Chief's perspective on the Eurozone rate path given the current market uncertainty.

FX Options For 10 am New York Cut 

  • EUR/USD: 1.0600 (705m) 1.0665 (825m) 1.0705(1.0b)
  • USD/JPY: 133.00 (1.2b)
  • AUD/USD: 0.6775 (1.2b)
  • Option risk reversal contracts increased their implied volatility premiums for USD calls versus EUR, GBP and AUD, while USD/JPY risk reversals increased their JPY call/USD put premium to flag the most vulnerable FX directions.(RTRS)

Overnight News of Note

  • Asian Bank Debt And Shares Fall After $17bn Credit Suisse Bond Writedown
  • UBS Seals Credit Suisse Takeover In Bid To Calm Market Nerves
  • Central Banks Announce New Liquidity Measures To Ease Banking Crisis
  • China Keeps Lending Benchmarks Unchanged In March, As Expected
  • BoJ Board Saw Need To Maintain Easy Policy - March Meeting Summary
  • Markets Price In Even Chance Of Further Bank Of England Rate Increase
  • Currency Markets Wobble After CS Deal As Fed Remains Acid Test
  • Treasury Two-Year Yield Erases Earlier Rise Of As Much As 18BPS
  • Some Asian Banks' Additional Tier 1 Dollar Bonds Drop By Record
  • Holders Of $17bn Of Credit Suisse Bonds Wiped Out Under UBS Takeover
  • Oil Falls As Banking Concerns Persist, Likely Fed Rate Hike
  • Iraq, OPEC Stress Need To Coordinate To Stabilise Prices
  • Goldman Sachs No Longer Sees Oil Reaching $100 This Year

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

Technical & Trade Views

SP500 Bias: Intraday Bullish Above Bearish Below 3865

  • Primary support is 3800
  • Primary objective is 4000
  • Below 3840 opens 3790
  • 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

EURUSD Bias: Intraday Bullish Above Bearish below 1.0650

  • Primary resistance is 1.0805
  • Primary objective is 1.0430
  • Above 1.0805 opens 1.0925
  • 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

GBPUSD Bias: Intraday Bullish Above Bearish below 1.21

  • Primary resistance  is 1.2265
  • Primary objective 1.1785
  • Above 1.2265 opens 1.2337
  • 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

USDJPY Bias: Intraday Bullish above Bearish Below 133.00

  • Primary resistance  is 135.50
  • Primary objective is 130.00
  • Above 136 opens 137.90
  • 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

AUDUSD Bias: Intraday Bullish Above Bearish below .6696 

  • Primary resistance is .6740
  • Primary objective is .6950
  • Below .6560 opens .6450
  • 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

BTCUSD Intraday Bias: Bullish Above Bearish below 26500

  • Primary support 23000
  • Primary objective is 30000
  • Below 23000 opens 22400
  • 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

More By This Author:

Daily Market Outlook - Friday, March 17
Daily Market Outlook - Wednesday, March 15
Daily Market Outlook - Tuesday, March 14

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to ...

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